Arbitrage Pricing Theory (APT) – Definition and Formula

A substitute and concurrent theory to the Capital Asset Pricing Model  (CAPM)  is one that incorporates multiple factors in explaining the movement of asset prices. The arbitrage pricing model (APT) on the other hand approaches pricing from a different aspect.    It is rarely successful to analyze portfolio risks by assessing the weighted sum of its components.   Equity portfolios are far more diverse and enormously large for separate component assessment, and the correlation existing between the elements would make a calculation as such untrue.   Rather, the portfolio’s risk should be viewed as a single product’s innate risk.   The APT represents portfolio risk by a factor model that is linear, where returns are a sum of risk factor returns.   Factors may range from macroeconomic to fundamental market indices weighted by sensitivities to changes in each factor.   These sensitivities are called factor-specific beta coefficients or more commonly, Continue reading

Effectuation – New Paradigm of Entrepreneurship

The business world is permeated through and through this kind of rationality, based on what we see is happening today in the world, what are the trends? what will be the consequences? are forecasted the solutions in a business environment. However, according to Saras Sarasvathy, it is not how entrepreneurs think. The thought process is not “causal” but “effectual”. When a project is approached, the entrepreneur has three means skills: his own innate abilities, skills acquired through education and personal contacts. The entrepreneur is guided by a simple maxim: “To what extent can we control the future, we do not need to predict it.” Here lies all the difference. According to Sarasvathy, the successful entrepreneur does not try to predict what will be the most profitable markets, very opposite idea to Henry Mintzberg. In 1997 Saras Sarasvathy, professor of business and ethics at the University of Virginia but then a Continue reading

How to Build a Successful Social Media Marketing Campaign?

The use of social media has increased exponentially, creating a fertile ground for platforms as a medium for advertising. However, advertising on social media can be very different from traditional advertising, due to the nature of the medium and the way on which marketing messages may be received. However, while there are differences compared to traditional marketing, there are also some similarities; with the stages of planning. The process of developing a social media marketing campaign may be broken down in to different stages; Determine the specific goals for the campaign. Identification of target market. Decision on the marketing message and specific content that will appeal to the target market. Framing of the message, and choice of medium. Communication of the message. Monitoring of the message impact. Adapting the message. These different stages may be seen as akin to the traditional marketing process, with a requirement to determine the specific Continue reading

Flexible v/s Fixed Foreign Exchange Rates

An exchange rate is simply the price of one currency in terms of another. The process by which that price is determined depends on the particular exchange rate mechanism adopted. In a floating rate system, the exchange rate is determined directly by market forces, and is liable to fluctuate continually, as dictated by changing market conditions. In a ‘fixed’, or managed rate system, the authorities attempt to regulate the exchange rate at some level that they consider appropriate. Such a system often seems appealing to those who are troubled by the uncertainties of the present, highly volatile, floating rate environment. But the choice of exchange rate regime involves considerations that extend beyond the stability or otherwise of currency prices. Exchange rates stability has always been the objective of monetary policy of almost all countries. Except during the period of great depression and world war II , the exchange rate have been Continue reading

Fundamental Analysis of Stocks

Definition of Fundamental Analysis Fundamental analysis of stocks is defined as the practice of examining the fundamentals of an organization in order to determine if a business has turned out to be a good investment. Fundamental analysis aims are answering questions related to the business finance and capital investment, such as “what are the probabilities that this business investment is going to fail or become bankrupt” and “how sure can a portfolio manager be that the stock continues to pay dividends?” In other words, fundamental analysis involves detailed study in regards to financial statements like the balance sheet. It is considered as a complete contrast to technical analysis of stocks. Fundamental analysis of stocks deals with the analysis of the financial, economic, as well as other quantitative and qualitative elements associated with a security with the sole intention of determining its intrinsic value. Even though this technique is employed for Continue reading

Research Design

A research design is nothing but a detailed plan of action for the research.  A researcher attempting to solve the research problem, should necessarily prepare a plan which will help him to attain his ultimate motto. This plan is nothing but a research design. It is a plan which defines research problem, identifies data needed, decides on tool of data collection, and type of study etc. It is a tentative plan which undergoes many modifications as the research study progresses. It presents a series of guide posts to enable the researcher to progress in the right direction. Definitions of Research Design Several definitions of Research Design have been advanced by several writers on the subject of research methodology. Few of them are presented here: According to Claire Seltiz, Research Design is a catalogue of the various and facts relating to the formulation of a research effort. It is the arrangement Continue reading